If you receive a redundancy package, your payout figure could be made up of several types of payments, including:

  • Accrued leave
  • A redundancy payment (or severance payment)
  • A possible incentive payment.

You can contribute these payments to your QSuper account as a non-concessional (after tax) contribution, but the normal contribution caps will apply.

Accrued leave

Accrued leave may include two components paid as lump sums:

  • Annual leave (or recreational leave)
  • Long service leave.

The amount of tax you’ll need to pay will vary based on when you accrued the leave, your age and your income for the relevant financial year.

Redundancy (severance) payment

It’s possible that your redundancy payment will be split into two parts including:

  • A genuine redundancy payment
  • An employment termination payment (ETP).

How tax is applied will vary depending on your age at the time you receive the redundancy.

Incentive payment

As well as the redundancy (severance) payment, you might be offered a one-off incentive payment. There may be conditions attached to this payment. Contact your HR representative to find out more.

For a benefit to be considered a genuine redundancy payment, it must meet the criteria set out in the Income Assessment Act 1997. Again, your HR representative will be able to give you further information.

In good news, redundancy packages aren’t taxed as highly as regular income. The tax you pay will depend on your age at the time you receive the redundancy package.

Payments are generally split into two parts and if you are under age 65, the first part is the tax-free portion that must be taken as a cash payment into your bank account. If you’re made redundant after age 65, there is no tax-free payment as your redundancy payment is not classified as ‘genuine’.

The second part is the employment termination payment (ETP) and this is the amount above any tax-free portion. This part is taxed at a maximum rate of 30% plus the 2% Medicare levy, and is capped at $205,000. Above the cap, you may have more tax to pay.

If you’re made redundant in the current financial year (2020-21) the tax-free portion comprises a base amount of $10,989 in 2020-21 plus a service amount of $5,496 in 2020-21 for every year of service.

Paul Case study

Pat has been working in the Department of Communities for 10 years and is offered a voluntary redundancy. Pat’s tax-free component will be $10,989 plus 10 times $5,496 for a total of $65,949.

Personal financial advice may be able to help you understand how to maximise your redundancy payment.